Oil output soars as Iraq retools

Originally published June 2, 2012 at 8:54 pm
Updated June 2, 2012 at 11:01 pm

Despite sectarian bombings and political gridlock, Iraq's crude-oil production is soaring, providing a singular bright spot for the nation's future and relief for global oil markets as the West tightens sanctions on Iranian exports.

BAGHDAD — Despite sectarian bombings and political gridlock, Iraq’s crude-oil production is soaring, providing a singular bright spot for the nation’s future and relief for global oil markets as the West tightens sanctions on Iranian exports.

The increased flow and vital port improvements have produced a 20 percent jump in exports this year to nearly 2.5 million barrels of oil a day, making Iraq one of the premier producers in the Organization of Petroleum Exporting Countries (OPEC) for the first time in decades.

Energy analysts say the Iraqi boom — along with increased production in Saudi Arabia and the near total recovery of Libya’s oil industry — should cushion oil markets from price spikes and give the international community additional leverage over Iran when new sanctions take effect in July.

“Iraq helps enormously,” said David Goldwyn, the former State Department coordinator for international energy affairs in the Obama administration.

Even if Iraq were to increase its oil exports by only half of what it is projecting by next year, he said, “you would be replacing nearly a half of the future Iranian supply potentially displaced by tighter sanctions.”

For Iraq, the resurgence of oil, which it is already pumping at rates seen only once — and briefly — since Saddam Hussein took power in 1979, is vital to its postwar success.

Oil provides more than 95 percent of the government’s revenues, has enabled the building of roads and the expansion of social services, and has greatly strengthened the Shiite-led government’s hand in this ethnically divided country.

Oil has also brought its share of pitfalls for the fledgling democracy, fostering corruption and patronage, and aggravating tensions with the Kurdish minority in the north over the division of profits, a festering issue that could end up fracturing the country.

The Iraqi government says it can add an additional 400,000 barrels a day of production by next year, and it has announced a goal of producing 10 million barrels a day by 2017, which would put it in a league with Saudi Arabia.

Few independent analysts say the larger goal is realistic, but oil company executives have been impressed by Iraq’s progress and ambition.

“What the government is embarking on and the increase in production they are looking for under all of these contracts is unique in the world,” said Michael Townshend, president of BP Iraq.

But, he cautioned, “nobody has yet managed to increase oil production in their country to the extent Iraq is planning to. It’s hugely ambitious, and it will take a lot of things to work correctly.”

The country’s improving oil fortunes are well timed to compensate for Iran’s declining oil output, which according to OPEC fell by 12 percent in the first three months of the year as India, China and other Asian nations have gradually cut purchases under pressure from the United States and Europe.

The recovery of Iraq’s oil industry after decades of wars, sanctions and neglect began in 2009 and 2010 as security improved and Baghdad signed a series of technical service contracts with foreign companies like ExxonMobil, BP, China National Petroleum Corp. and ENI of Italy.